14 May 2013

Junior partners may get some rights after all

A Government initiative to collect more National Insurance may, inadvertently, give certain members of LLPs greater employment rights. I have written in previous blog posts about the lack of basic employment rights available to junior members of LLPs.  Unless a member of an LLP can show that he or she really is an employee – which has been difficult so far – there will be no right to claim unfair dismissal or even protection following being victimised for being a whistleblower. The Government is concerned that many LLPs are avoiding employer's NIC by categorising employees as members of the LLP.  With employer's NIC standing at 13.8%, it is plain to see why many LLPs with a large salary bill will opt for this ruse. In the Queen's speech, it was announced that the presumption of self-employment for members of LLPs will be removed.  This will not, of course, mean that all members of LLPs will suddenly be taxed as employees but that they will have to prove that they are, in reality, self-employed business-owners and should be taxed as such. We will have to see exactly how this is implemented but I can't help but think that, if a member of an LLP is taxed as an employee, an employment tribunal should be more willing to accept that he or she is an employee with employment rights. This is slightly ironic as the Government is rolling back employment rights elsewhere. When assessing the true situation, HMRC and employment tribunals will look at a number of factors including the capital contribution of the individual concerned, the extent to which they take a risk and share in profits and losses and what, if any, influence they have over the running of the business.  Will this result in more members of LLPs being able to show they are employees? Probably but… …it may also result in LLPs making sure their junior members put in meaningful capital in return for minority voting rights and a small profit share.

Category: Blog